Professions and Financial Lines Brief: latest decisions July 2021
In this briefing, we consider the latest significant court decisions impacting claims arising from professional liability and financial lines policies and products. Issues covered include: limitation and accrual of action, strike out applications, avoidance and non-disclosure (of material facts), SIPP advice from unregulated introducers and fraudulent and wrongful trading of directors.
Court of Appeal rules on when a cause of action accrues for negligent advice
Sciortino v Beaumont [25.05.21]
The Court of Appeal (CA) has ruled that a barrister accused of giving multiple pieces of negligent advice about the same case can be sued even though the allegations arising from the first set of advice are statute-barred.
The claimant was made bankrupt in June 2007. His house was vested in his trustee in bankruptcy who, three years later, applied to the court for orders for possession and sale.
The orders were made by the court in March 2011.
The claimant instructed the defendant barrister to advise on his prospects of appealing the orders for possession and sale. An appeal was launched on the basis of the defendant’s advice provided in conference on 20 April 2011. The defendant then settled the papers for the appeal under a covering email dated 4 May 2011 explaining the claimant had a reasonable prospect of success.
On 26 October 2011, the defendant sent his written advice on the merits of the claim explaining that the claimant had a 55-60% prospect of success. A deputy judge rejected the claimant’s argument and the property was sold.
The claimant subsequently brought a claim for professional negligence against the defendant. In his reply, the claimant admitted that any claim based on the advice in April and May 2011 was statute-barred, but argued the claim based on the advice on 26 October 2011 was not.
The High Court held that the action was based on the advices given earlier in 2011 and that the entire claim was statute-barred.
However, the CA unanimously allowed the claimant’s appeal. It was held that the April and May 2011 advice did not render the claim in respect of the October 2011 advice out of time. The October 2011 advice could be treated separately, and the claim based on that advice was therefore not statute-barred.
Coulson LJ said “it seems to me that any alleged negligence in October 2011 was different in nature and extent to any prior negligence in April/May. The respondent was being asked to give different and more comprehensive advice, in very different circumstances.”
The decision is important as the court has given guidance on when a cause of action in negligence accrues against a barrister (or other professional) who has advised on two (or more) separate occasions about the same or similar issues.
Contacts: Matt Deaville and Patrick W George
£58 million unlawful means conspiracy claim struck out
Kings v Steifel and others [26.04.21]
In 2015 Anthony, James and Susan King (the Kings) brought proceedings for fraudulent misrepresentation against Primekings (represented by Teacher Stern and Paul Downes QC) and others. Halfway through the trial, the Kings discontinued their claims, apologised and agreed to pay indemnity costs.
Subsequently, the Kings brought fresh proceedings against Primekings for unlawful means conspiracy and also named Teacher Stern and Mr Downes QC as defendants (the defendants).
The Kings alleged that during the original misrepresentation proceedings, the defendants had collectively and unlawfully pressured the Kings into discontinuing their claims. More specifically they asserted that the defendants:
- Deployed threatening and intimidating conduct, and
- Budgeted their costs excessively.
The defendants applied to strike out the claim.
During the application hearing, the Kings also asserted that the defendants exploited errors made by the Kings’ original legal team and conspired with those lawyers to bring about the discontinuance of the misrepresentation proceedings.
The court was highly critical of the Kings. In her judgment, Mrs Justice Cockerill DBE stated:
“I am not… by any means stifling a claim which should be heard. What I am doing is bringing a proper conclusion to a claim which is structurally fatally flawed, abusive and lacking inpleadable substance.”
Significantly, she deemed that:
- It was an abuse of process to seek to re-litigate a claim that had already been discontinued.
- The allegations were not, in any event, causative of the Kings’ discontinuance.
- There was no evidence that the defendants knew about the alleged negligence of the Kings’ legal team and/or the team’s failure to disclose the situation to the Kings.
- No separate loss arose out of the costs representations and there was no real prospect of it being held that the representations caused the discontinuance.
The decision is a welcome example of the court taking a proactive and robust approach to striking out claims where necessary.
Related item: Kennedys strike out £58 million conspiracy claim
Material non-disclosure was not an “efficient cause” of different policy terms in Court of Appeal case
Zurich Insurance Plc V Niramax Group Limited [23.04.21]
Niramax held buildings cover with Millennium Insurance (Millennium).
Niramax also held insurance through Zurich which covered machinery and equipment, including a multi-million pound sorting machine known as the Eggersman plant. This policy was underwritten by a junior employee who used a “commoditised and streamlined” process involving three inputs: the amount of the cover, the nature of the trade and the claims experience. When entering these variables the employee incorrectly categorised the risk, causing the premium to be incorrect with a very low policy excess.
On 4 December 2015 a fire broke out at Niramax’s main premises, destroying approximately £4.5million of machine and equipment, including the Eggersman plant. Upon notification, Zurich reserved its right to avoid the policy on the basis that Niramax had failed to disclose the special terms imposed by Millennium.
At first instance, the court held that there had been a material non-disclosure which was not causative of the mistake by Zurich’s employee. Zurich may therefore have declined to insure the Eggersman plant, but the court did not accept that it would have cancelled the policy.
Niramax appealed to the Court of Appeal who dismissed the appeal on the basis that Zurich did not take independent account of the risk when calculating the premium. The employee’s mistake was therefore the sole cause of the lower premium, meaning the undisclosed facts would not have had any causative effect on the renewal being written on cheaper terms.
This outcome emphasises the need for insurers to have clear processes, which show when decisions are made and by whom.
Mis-selling claim against mortgage brokers dismissed by courts
Collett v SPF Private Clients [21.04.21]
In 2005, Mr and Mrs Collett (the claimants) sought mortgage advice from SPF Private Clients Ltd (the defendant) to purchase a house. The advice culminated in the defendant advising the claimants to part-exchange their current property in order to enter into a regulated mortgage which was repayable on an interest only basis over a period of 20 years.
The claimants brought a claim against the defendant in April 2020, shortly before the 15 year longstop limitation date. They asserted the defendant advised the claimants to enter into an interest only mortgage when a repayment mortgage would have been more affordable. The defendant also allegedly failed to advise them that they would need a suitable repayment vehicle to fund the repayment of the mortgage at the end of the term.
The claimants sought to rely on the secondary limitation period (three years from date of knowledge). They asserted that they only acquired the relevant knowledge on seeing adverts on social media about mortgage mis-selling in August 2018 and realised that a repayment mortgage may have been available to them in 2005.
The judge granted summary judgment in favour of the defendant. He found that the warnings provided in the mortgage offers and statements were sufficient to give the claimants constructive knowledge for the purposes of limitation. The judge also found that any individual should understand that he will be required to pay more interest on the entire capital sum in an interest only mortgage than on a reducing capital sum in a repayment mortgage.
Most claims brought against brokers for mis-selling interest only mortgages are brought well outside the primary limitation period and previous attempts to strike out claims on similar grounds have been unsuccessful. This decision therefore marks a welcome change for defendant mortgage brokers.
Referrals from the unregulated: A warning to SIPP providers
Adams v Options UK Personal Pensions LLP & ORS [01.04.21]
Mr Adams moved funds from his pension into a SIPP which was operated by Care Pensions UK LLP (Carey). Mr Adams was introduced to Carey by an unregulated introducer named CL & P Brokers Socieded Limitada (CLP). The SIPP was used to purchase nonstandard investments in income-generating store pods (storage units). However the investments proved to be unsuccessful and made a loss. Mr Adam’s claim to the High Court was unsuccessful. The Court of Appeal (CA) considered two of Mr Adams’ allegations in detail: whether Carey breached s.27 of the Financial Services and Markets Act 2000 (FSMA) and/or COBS 2.1.1R of the Financial Conduct Authority (FCA) Handbook.
Mr Adams alleged that CLP had breached FSMA’s general prohibition under s.19 by arranging deals and advising on his investment, as an unauthorised person. Mr Adams also alleged that he entered the SIPP with Carey as a result of this and that it should be unenforceable under s.27 FSMA. The CA considered that Mr Adams had entered into a “relevant investment” to which the regulatory regime applied and that CLP did “advise on” his investment that the investment was made “in consequence” of that. The appeal was allowed on these grounds.
However, Mr Adams’ claim that Carey breached the FCA handbook was dismissed. In the High Court, Mr Adams had argued that Carey breached rule 2.1.1R by establishing a SIPP and administrating on a “manifestly unsuitable” investment. The CA found that Mr Adams had attempted to radically amend his particulars of claim to the extent of putting forward a new case and the claim was dismissed.
The judgment provides a useful warning to SIPP providers who choose to accept business referrals from unregulated introducers. Of course, it will be likely to have limited impact on those only dealing with regulated introducers.
The many allegations that can be lodged against a director
Biscoe and Baxter as Joint Liquidators of Equitable Law Capital Limited v Milner & others [30.03.21]
The applicants were joint liquidators of Equitable Law Capital Limited (ELC). ELC ran an investment scheme, funding claims against financial institutions for mis-selling of bonds. Investors would contribute capital which ELC would use to fund the mis-selling claims. With successful mis-selling claims, the claimant would receive compensation, less a success fee, which would be shared between ELC and a claims management company, with the investor receiving a fixed return. If the claim failed, the loss of the investment would be covered by insurance. The scheme ultimately was unsuccessful, with investors paying over £3 million, and receiving returns of just over £200,000. As a result, ELC with its lack of working capital was put into insolvent liquidation.
It was alleged that there were serious misrepresentations in the brochure presented by ELC to investors, as well as allegations of fraudulent and wrongful trading by directors and breaches of directors’ duties.
The first and second respondents were, respectively, actual and de facto directors of ELC. The claims against them were settled by way of settlement agreement.
The third respondent, who was a consultant to the scheme, was deemed to be a de facto director of ELC and was held liable for fraudulent trading under the Insolvency Act 1986 s.213. The court found that with regard to wrongful trading allegations under s.214 of the 1986 Act, there was no requirement to show that the loss would not have been suffered if the person had complied with their duties. Instead, a causative link between the continuation of trading and an increase in the deficiency to creditors needed to be proved, which it was in this case. Furthermore, since he was a de facto director, the third respondent also owed ELC statutory duties under the Companies Act 2006 and was held to have breached those duties.
Interestingly, as regards the settlement agreement for the claims against the first and second respondents, the court noted that where there was a joint cause of action against more than one person, a discharge of one of them operated as a discharge of all. However, a covenant not to sue one joint tortfeasor did not have the same result. Furthermore, the authorities did not apply against concurrent tortfeasors (i.e. persons liable for separate torts that combine to produce the same damage).
The many claims lodged against the directors (both actual and de facto) in this case highlights the need for directors to be aware of the position of responsibility they hold. In addition, the case highlights the intricacies of the law around settlement agreements, and emphasises the importance of obtaining legal advice when negotiating such agreements.
Contacts: Graham Gowland and Daniel Kellard